Best Practice: Succession plans for the solo practitioner
Asked and Answered
By John W. Olmstead, MBA, Ph.D, CMC
Q. I came across your firm while researching law partnerships. The short story is as follows: I am a sole practitioner and have been practicing for over 35 years. I have a high volume practice and employ 7-8 people. Business is good and actually on the rise. I have a great office manager and outstanding loyal staff. The practice is on semi-autopilot for me. I have a young associate lawyer in my office that shares space and is learning my practice but actually seems to be making his own way in a different practice area. He wants to buy into my practice. We have had some serious talks. He's capable and I think the right person to transition with. I have asked myself why sell/partner/transition when I don't have to? I am not ready to retire. With that said a 3-5 year plan may make sense. Let me know your thoughts.
A. The real value for most practitioners is the cash flow from working in the practice. Exit value is secondary and only makes sense when you are ready to quit or retire.
Eventually, however you will retire (retirement, death, etc.) as the clock runs. The biggest problem for practitioners ready to exit the practice is finding attorneys willing to buy the practice or buy out partnership shares in the event of a partnership. I am working with practices where it has taken a couple of years to find the right WHO and this often dictates the WHAT - merger, partnership, Of Counsel, sale, etc. The approach that works best is an internal transition via bringing an associate into partnership. So, I would take a serious look at the attorney that you are speaking about, maybe have him become a partner (member in a LLC) with minority interest initially, and incorporate into your agreements how compensation will be handled, him acquiring additional interests down the road, and the arrangement for your retirement payout upon your actual retirement.
Don't wait until you are ready to retire - take some baby steps now.
Good luck with it.
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John W. Olmstead, MBA, Ph.D, CMC,(www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.